REITs driving investment demand for Brisbane industrial assets

By Karina Salas and Matthew Frazer-Ryan5 Nov 2019

The surge of REITs as an attractive investment vehicle worldwide is driving demand for large industrial assets in Brisbane with nearly half of the sales this year or $505 million acquired by Australian and offshore REITs.

As per the latest research by Colliers International REITs investment activity in the Brisbane industrial market has risen to 50 per cent in 2019 from 20 per cent in 2018 and circa 5 per cent in 2017.

Karina Salas, Research Manager at Colliers International said the current infrastructure investment in projects like the M1 Pacific Motorway and the Logan Enhancement Project is strengthening the outlook of the industrial market in Brisbane, with REITs identifying this city as a strategic location for industrial investments providing long-WALE rental streams.

“We anticipate that REITs will continue to drive a large portion of investment demand of Brisbane industrial assets over the next 12 to 18 months,” Mrs Salas said. “This is because the Brisbane industrial market continues to consolidate as a preferred location for a variety of operators looking for affordable large-scale warehouses in proximity to a transport network offering cost-efficient connectivity to national and international markets.”

The year-to-date volume of sales (above $5 million) in Brisbane and Yatala of $1.09 billion is on track to outperform the 2018 sale volumes. The South precinct remains as the main location of investment transactions, with circa $501 million sales representing 46 per cent of the total sales volumes.

Fierce competition for industrial assets in Brisbane across a broad spectrum of investment players has driven further compression of yields in the range of 40 to 50bps over the past year. Prime grade investments are transacting at an average yield of 5.94 per cent while secondary grade assets are trading at an average yield of 7.53 per cent.

The long-standing reduced cost of debt and the current low levels of the Australian bond yield are forecast to continue to drive further yield compression into 2020.

“Looking at the industrial occupier activity, it is the strongest in the prime grade market, driven by the relocation and expansion activity within the Yatala and South precincts,” said Matthew Frazer-Ryan, National Director of Industrial at Colliers International.

“Rental activity within the secondary market continues to soften, revealing the flight-to-quality phenomenon extended across the different Australian property asset classes.

“Southern industrial precincts have become a strategic location for industrial expansion in southeast Queensland particularly after the recent completion of the $512 million Logan Enhancement Project and the ongoing upgrade of the M1 Pacific Motorway.

“Leasing demand of existing industrial space in the South and South West precincts has been solid over the year to date, with circa 214,000sqm of gross lettable area (GLA) tenanted.

“New industrial development supply at Berrinba between 2019 and 2022 is forecast at circa 268,360sqm, with nearly 30 per cent (circa 79,200sqm) of the space reaching practical completion in 2019.

“We anticipate that the suburb of Crestmead will see the next wave of leasing deals due to its proximity to the upgraded roads along the Logan Motorway and the availability of vacant industrial land along Green Road largely owned by institutional investors (estimated at circa 40ha),” Mr Frazer-Ryan said.

The average net face rents in Brisbane and Yatala increased by 1.3 per cent YoY, to $111/sqm in September.

Related Experts

Karina Salas

Karina began her professional career in Peru in the areas of credit analysis and banking negotiation, shaping the analytical skills supporting her current portfolio of clients at Colliers International.

During her experience as an Analyst Supervision with APRA and in corporate finance, she has gained experience across many facets of business and project investment including research, feasibility analysis, forecasting, risk management, funding structure and financing.

Her passion for the property sector supported her decision to change careers and invest in the delivery of a portfolio of small development projects for the residential sector. Karina has gained solid experience in the property sector across various investment assets including residential, commercial and industrial.

Throughout her career, Karina has gained a vast knowledge in risk management, project management, finance and property research, making her a valuable asset for our clients in the Brisbane office.

Matthew Frazer-Ryan

Based in the Brisbane CBD office of Colliers International, Matthew specialises in industrial investment sales, leasing / design and construct and major estate projects. His main region of focus is the core Brisbane industrial markets and the Australia TradeCoast and Logan Motorway precinct.

Having commenced his Real Estate career in 1998, he have been involved in both industrial and commercial markets within Australia and the UK. In 2012 he joined Colliers International, after 9 years at JLL, and have completed some of the most prominent sales and leasing transactions within Brisbane.

As leader of Colliers International’s Brisbane industrial business, he takes overall responsibility of the day-to-day running of the Brisbane industrial operation and also lead the South Brisbane Industrial team.